The Federal Reserve should
delay raising interest rates until the first half of 2016, the
IMF said as it cut its US growth forecast for
the 2nd time this year. The lender also said that the dollar was “moderately overvalued” & a
further marked appreciation would be “harmful,” on its annual checkup of the US economy. “The FOMC should remain data dependent and defer its first increase
in policy rates until there are greater signs of wage or price inflation
than are currently evident,” the IMF said. Based on the fund’s economic
forecast, & “barring upside surprises to growth and inflation, this
would put lift-off into the first half of 2016.” A stronger dollar, declining oil investment & a West Coast port
strike in Q1 will pull down US growth to 2.5%
this year which previously projected the economy to expand 3.1% in 2015.
Economists also expect US growth of 2.5%. Janet Yellen on May 22 said she still expects
to increase interest rates this year if the economy meets her forecasts.
The Fed, which hasn’t raised rates since 2006, will need to see
continued improvement in labor market conditions & be “reasonably
confident” that inflation will move back to 2%, she said. The strengthening dollar & global disinflationary trends will probably weaken inflation pressures, according to the IMF. The report also discussed financial stability, with the IMF pointing
to higher risks in shadow banking, a potential lack of liquidity in
fixed-income markets, & greater market risk-taking in the insurance
industry.

Fewer workers filed applications for unemployment benefits last
week, signaling the US job market remains firm even after growth
plunged at the start of the year. Jobless claims decreased 8K to 276K in the latest week ended
from a revised 284K in the prior period, accodoing to the Labor Dept. The forecast called for 278K. The number receiving unemployment insurance payments was the smallest in more than
14 years. Dismissals that have remained subdued mean employers could consider
adding to staff as the economy emerges from a Q1 slump. It was the 13th consecutive week that the number of applications held
under 300K, which is consistent with an improving
labor market. The 4-week average of applications increased to 274K from
272K in the prior week. The number continuing to receive jobless benefits declined 30K to 2.2M, the fewest since
2000. The unemployment rate among people eligible for benefits
fell to 1.6% from 1.7%. While the persistently low levels of layoffs are typically associated
with a healthy pace of hiring, bigger job gains have been slow to
develop in Q2.

OPEC has been pumping
above its production quota for months, determined to subdue supply from
higher-cost producers. The strategy is working, with a record drop in
the number of active US rigs & billions cut from global producers’
spending plans. In contrast, some of OPEC’s members spent this week
outlining how they plan to expand output. Oil giants are seeking to invest in Iran once sanctions end. Iraq’s oil
minister, Adel Abdul Mahdi, said he would talk with most oil executives
at the seminar under way before tomorrow's meeting, when the ministers
will formally decide on OPEC’s production target. It is expected that
the 12-nation group will maintain the current daily limit of 30M
barrels. OPEC pumped 31.6M barrels a day last month, the most since 2012, as its members
compete for market share & try to crowd out higher-cost producers
including shale drillers. Prices dropped the most in 4 years after
the last meeting in Nov, when OPEC left output unchanged despite a
global surplus. Iraq, leading the surge in production, will
add about 100K barrels a day to its exports in Jun, Abdul Mahdi said, an increase of 3.2% from May when the
nation shipped a record 3.15M barrels a day. “The main and most important fields are in safe areas, and operations
there are normal, infrastructure is improving, security is improving in
terms of loading, storage,” Abdul Mahdi said. About 800K barrels a
day of Basrah Heavy, a new grade introduced this month, have been sold
for Jun, he added. Also, Iran’s oil minister delivered a letter to the group telling them to
make room for the country’s rising output. Iran is discussing its
nuclear program with world powers, & an easing of sanctions against
the Persian Gulf state would allow it to boost production and exports of
crude. “With sanctions removal, after a short time we can return our
production to pre-sanctions levels,” its minister said. While oil prices have been low for several months, “things will
balance out,” OPEC Secretary-General Abdalla El-Badri said.

Another dreary day in the stock market. The forecast by the IMF for slower US growth this year is not a surprise, but that caused traders to sell. Tomorrow will be a big day for the markets with the Jun jobs report & the decision by OPEC on setting its production goal. Today's down market reflects nervousness out there.